THE BLOG

Are the Tax Practices of Large Businesses in Danger of Undermining Justine Greening's Aid Strategy?

03/02/2014 12:08 GMT | Updated 02/04/2014 10:59 BST

International Development Secretary Justine Greening has recently announced that Britain will more than double its investment in promoting economic growth in developing countries, to help end their dependency on aid.

As part of this she detailed plans to support the development of embryonic capital markets and drive more investment into frontier economies. She also spoke about the importance of helping developing countries reap the benefits of economic growth by building stronger revenue systems to collect the tax receipts needed to fund health and education.

But in doing so, she raised an interesting question. Are Government policies like these undermined by the mounting evidence that British businesses are avoiding tax in the very markets that are most in need of an increased tax-take?

One case in point is Barclays. Late last year the international development charity ActionAid revealed how Barclays has been actively encouraging companies operating in Africa to use tax havens, even after the bank made a public promise earlier this year to clean up its business. Barclays is one of the largest banks in Africa and now derives 10% of its business from the continent.

Now, on the one hand, Barclays is not doing anything illegal. It is possible - although hard to judge - that some corporate profits that are tax free in Africa eventually end up in the hands of HM Treasury. Not a problem - or not our problem - would be a reasonable response.

But, on the other hand, government and public attitudes toward the behaviour and responsibilities of large companies have changed over the last few years. We expect more of companies today, in our long term interests and in theirs.

And when it comes to tax and preventing tax avoidance - there is at least a prima facie case that Barclays may be undermining the value of the British aid programme.

To facilitate greater economic development African governments need to raise more revenue. This could be used to fund better public services, to show more of their own citizens that government has something positive to offer, and to enable them to cope with the inevitable decline of aid in the longer term.

The use of tax havens by companies investing in Africa has always damaged the efforts of African governments to raise tax revenues.

But now that the British government is committed to supporting those efforts, Barclays's promotion of tax havens would seem to undermine the objectives of the British aid programme and the value that British taxpayers receive from that programme.

If Barclays was to redefine its corporate social mission to stop encouraging clients to use tax havens - and set an example for other financial companies to do the same - then there would be wins all round.